TAIPEI, Taiwan – The rivalry between the United States and China has a brand new flashpoint within the battle for technological supremacy: electric cars.
So far the US is losing.
China became the world's top automobile exporter last 12 months, overtaking Japan with greater than 5 million overseas sales, based on the China Passenger Car Association. About 25% of those exports were recent energy vehicles, and greater than half of them were manufactured by Chinese brands, marking a departure from China's traditional assembly role for foreign automakers.
“The big growth has happened in the last three years,” said Stephen Dyer, head of the Asia automotive and industrial practice at AlixPartners, a consulting firm. “With Chinese automakers capturing most of the market share, this is a big challenge for foreign automakers.”
China's rapid expansion at home and abroad has fueled a series of disputes between the U.S. and China over trade and advanced technology as competition between the 2 superpowers increases.
The US has lofty goals for expanding its own electric vehicle industry. California, which accounted for 37% of nationwide electric automobile sales in 2022, is aiming for this Phase out purchases Number of latest cars that can run on fossil fuels by 2035.
Concerns about oversupply in China got here as an overall decline in sales hit electric vehicle makers. Tesla announced on Monday that this might be the case greater than 10% laid off its workforce to scale back costs and increase productivity.
In the corporate's last earnings report in January, CEO Elon Musk warned concerning the competitiveness of Chinese brands. BYD, China's largest electric vehicle maker, surpassed Tesla in automobile sales last 12 months.
“If there are no trade barriers, they will essentially destroy most other automakers in the world,” Musk said.
This 12 months, California-based Fisker Inc., an electrical vehicle startup, cut 15% of its workforce, delisted its stock and said it’d file for bankruptcy. Apple also recently announced that it will end its long-held ambitions to develop a self-driving electric vehicle.
One area where Chinese automakers clearly beat Western rivals is price, due to government subsidies that supported the industry's initial rise, in addition to low cost access to critical minerals and components like lithium-ion batteries, which account for a few third of the overall price make up production costs.
“These ingredients were always there,” said Cory Combs, deputy director of China energy policy at consultancy Trivium China. “It was a magical moment when these things came together.”
This enabled the success of BYD, which began producing lithium-ion batteries in 1996 and cars in 2005.
In March, BYD cut the value of its most cost-effective electric vehicle model in China to under $10,000. According to Kelley Blue Book, the common retail price for electric vehicles within the U.S. is $55,343, in comparison with $48,247 for all vehicles.
While price wars have forced Chinese automakers to squeeze their profit margins at home, they’ll charge higher prices in overseas markets, providing further incentive for exports as growth at home has slowed. According to research firm Gavekal Dragonomics, demand in China has cooled on account of the lifting of tax breaks and increased use of public transport following the pandemic.
“There's a lot of pressure, especially if you're a smaller player, to find a market that's less competitive,” Combs said. “And every market is less competitive than China’s.”
Although 27.5% tariffs have effectively shut Chinese electric vehicles out of the U.S. market, fears have spread that the cheaper models could ultimately undermine American automakers.
The Alliance of American Manufacturing warned in a February report that allowing Chinese electric vehicles into the country can be an “extinction event” for the U.S. auto industry. The group also cited the chance of Chinese auto firms constructing facilities across the border in Mexico that would avoid the tariffs.
After a visit to China in April, Treasury Secretary Janet L. Yellen raised concerns about government-funded overcapacity in Chinese production of electrical vehicles, batteries and solar panels. She noted that other advanced and emerging markets shared those concerns, comparing the oversupply to a flood of low cost Chinese steel that swept the worldwide economy greater than a decade ago.
“If the global market is flooded with artificially cheap Chinese products, the viability of American and other foreign companies will be called into question,” Yellen said.
The European Union has launched an investigation into government subsidies to China's electric vehicle industry and whether that support violates international trade laws.
China's state news agency dismissed claims of overcapacity in an April article that said exports accounted for 12% of China's electric vehicle sales last 12 months. She attributed the industry's success to competitive prices and technology relatively than government subsidies.
After meeting with German Chancellor Olaf Scholz in April, Chinese President Xi Jinping condemned protectionism in other countries and said Chinese exports of electrical vehicles had helped reduce global inflation and combat climate change.
How the U.S. deals with China's increasing dominance in electric vehicles has already develop into a hot topic for November's presidential election.
President Biden has encouraged domestic expansion with the passage of the Inflation Reduction Act, which provides electric vehicle tax credits for U.S. manufacturers, but not in the event that they source minerals and materials from “foreign companies of concern” reminiscent of China. Meanwhile, presumptive Republican nominee Donald Trump has claimed that electric automobile manufacturing will eliminate automotive jobs and called for a rollback of electrical vehicle-friendly policies introduced during Biden's term.
Politicians from each parties have proposed even tougher tariffs on Chinese-made electric vehicles if they fight to enter the U.S. market, prioritizing protecting U.S. jobs over goals to scale back carbon emissions.
“This makes it even more important for Chinese companies to set up local assembly operations to minimize these costs,” said Gregor Sebastian, senior analyst at New York consulting firm Rhodium Group. “Many companies are taking a wait-and-see approach.”
Even without Chinese automobile imports, the technology within the vehicles has unnerved U.S. officials. In March, Biden announced an investigation into Chinese-made “smart cars” and the info the internet-connected vehicles could collect on American users. Collaboration between U.S. firms and CATL, the Chinese battery giant, has also come under greater scrutiny as tensions between the 2 countries have escalated.
But China has spent many years cementing its status as a world leader in sourcing minerals and developing critical technologies like electric vehicle batteries, while the United States has fallen behind. This will now make it harder for Western automakers to completely exclude Chinese suppliers, said Tu Le, founder and chief executive of Sino Auto Insights, a consulting firm.
“If automakers want to build affordable clean energy vehicles this decade, using Chinese batteries is the only way,” Le said.
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